Mumbai, Sept. 24: The Securities and Exchange Board of India (Sebi) has chastised Stock Holding Corporation (SHCIL) for its complicity in financing circular trades of a clique of deep-pocketed brokers in the DSQ share.
A Sebi inspection of SHCIL’s stock-lending activities was ordered in May last year. The probe centred on sell-and-cash (SAC) and cash-on-payout (COP) schemes, especially transactions that involved the Biyani group and Dinesh Dalmia, the promoter DSQ Industries.
“It is intriguing why a promoter should approach the financier (SHCIL) in respect of market transactions in a company’s shares,” Sebi’s interim report states.
The findings reveal most trades were circular in nature — brokers on both ends were inter-related. SCHIL’s exposure in respect of DSQ Industries shares was Rs 42.88 crore, close to a third of its total net-worth.
Stumbling on leads, the report said there were transactions where empanelled brokers executed the sale of proprietary holdings by masquerading as buyers on the other side of a deal. This was done by misusing the SAC facility.
After the investors Grievances Forum (IGF) took up the matter, several members of the Joint Parliamentary Committee probing the March 2001 market crash pointed to a report submitted by M. Ramesh, manager (vigilance and security) at SHCIL, about transactions involving Harsh Chandra Biyani (HB). However, the report that used Biyani’s deals to expose irregularities in SHCIL’s working was ignored and Ramesh, the whistle-blower, was persecuted, Sebi said.
Stock Holding Corp issued comfort letters to IndusInd Bank for Rs 24.48 crore — an unusual and unprecedented gesture from a depository participant and a custodian.
Though the objective was to provide liquidity to retail investors, inspections between January 2000 and March 2001 show 42 per cent of SHCIL’s Rs 408-crore volume came from deals worth more than Rs 25 lakh — hardly something that small shareholders can afford.
SCHIL introduced its cash-on-payout scheme in August 2000 without Sebi’s prior approval. Sebi found it intriguing that the scheme covered brokers, who normally receive money on the payout day as opposed to COP, where sale proceeds flow in a day after pay-out.
An analysis of COP revealed that only Harish Biyani had availed of the facility on March 2, 2001 for Rs 24.48 crore. “Other than this transaction, there has been no other for any broker,” the interim report states.
Harish Chandra Biyani and Biyani Securities Pvt Ltd (BSPL) are member-brokers of CSE. They are related entities of Aloke Biyani (Harish Biyani’s Son) and Ravindra Biyani (his nephew) — both directors of BSPL. The two entities share the same office. The report says SHCIL was aware that both were brokers, and inter-related as well.